The Bond Trap

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If you buy a car on credit and it wears out before you’ve paid it off, you might buy its replacement on the same credit line. In this scenario, you’ll not only never pay off your cars, but you’ll end up paying the creditor far more than if you purchased your cars with cash.

And so it is with many schools across the nation. When they need a new HVAC system, roof repairs, or repaved parking lots, they typically extend existing bond payments. In other words, instead of asking voters to approve a new bond (which would raise taxes), they simply stretch out payments on the old one—pushing the payoff date further into the future. It’s like refinancing your house: you get more cash now, but your 30-year mortgage just became a 40-year one.

This endless refinancing treadmill hides the real cost of keeping our schools running. For example, a new roof may last 20 years. The bond that paid for it might last 25 years. By the time the roof needs replacing again, we’re still paying off the last one. So we extend the existing bond, effectively adding another generation’s worth of payments. In a few years, the process repeats. The bond never gets paid off; it essentially becomes a high-interest credit card.

It’s easy to see why school districts do it. Voters hate the word “tax,” so extending an existing bond instead of proposing a new one feels like a win: we get improvements without raising taxes. But convenience carries a price. It locks us into permanent debt, siphoning millions in interest that could have gone to teachers, classrooms, and kids.

If you ran your household like this—fixing your roof on a credit card and then refinancing that debt every few years—you’d never get out of debt, even if you never missed a payment. Yet that’s exactly how we manage our schools.

How do we get out of this endless cycle of debt?

One possibility is to shift our perspective. We must stop funding debt and start managing money more wisely.

The first step is a reserve study — a planning tool used successfully by homeowners’ associations and municipalities alike. A reserve study examines all possible maintenance costs a school is likely to encounter over the next 20 years. A new roof, for example, may be needed every 20 years. A reserve study breaks down costs so we not only know when we’ll need money, but also how much we’ll need, factoring in inflation. In effect, a reserve study is like peering into the future and anticipating our financial health. We then use this reserve study to set aside money each year to meet those anticipated costs. While that money is waiting to be spent, it can be invested in well-managed financial accounts, so we’re actually making money on future repairs instead of losing money on past repairs.

Reserve studies also show the community exactly how their money is used and when the next repairs are coming. This sort of transparency builds trust, and trust builds support. People will know that their tax money is being spent wisely rather than being squandered away in a rotating credit scheme.

The bottom line is that we can afford well-maintained schools while having minimal impact on our taxes. We do this by planning and setting aside reserves, managing what we have, and finally moving from a culture of debt to a culture of stewardship. That’s how we build not just better schools, but a better example of how government should work—for today, and for the generations to come.

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